US Fed to Investigate Itself over Silicon Valley Bank Collapse

The US Federal Reserve Board (Fed) is going to investigate itself to determine how the Silicon Valley Bank (SVB) failed under its watch.

In a press release on Tuesday, Fed announced that its vice chair for supervision Michael S. Barr was leading an investigation that would examine how it supervised and regulated the now-collapsed financial institution. The report is set to be released on May 1^st.

@federalreserve announces that Vice Chair for Supervision Michael S. Barr is leading a review of the supervision and regulation of Silicon Valley Bank, in light of its failure. The review will be publicly released by May 1: https://t.co/wQ39KLiwHE

— Federal Reserve (@federalreserve) March 13, 2023

SVB: The Second-Largest US Bank Failure

The California Department of Financial Protection and Innovation shuttered the Silicon Valley Bank, also known as (SVB), on March 10^th. It was one of the United States’ 20 largest banks by total assets.

California’s financial watchdog did not specify the reason for the shutdown. However, it reportedly was struggling with its financial health following the sale of $21 billion in securities at a $1.8 billion loss.

Following the collapse, many pointed out the change in capital requirements in 2018-2019 that increased the size of banks deemed important to $250 billion in assets from $50 billion. Some changes in 2019 exempted banks with less than $250 billion in assets from the Fed’s annual stress tests. Fed also exempted some banks with $100 billion to $250 billion in assets from maintaining a ratio showing they had enough high-quality liquid assets to weather bad times.

The Fed has now promised an investigation into its own supervision and regulation of SVB, “in light of its failure.”

Fed Chair Jerome Powell, stated:

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve. We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience.”

SVB incident was the second major US bank collapse in the last week, following the bankruptcy of crypto-friendly Silvergate, which announced a voluntary liquidation on March 8^th. SVB was followed by another crypto-friendly Signature Bank, which, as reported, was shuttered on Sunday and handed over to Federal Deposit Insurance Corporation (FDIC).

FDIC is looking for New Owner for SVB

According to the Wall Street Journal report, FDIC officials have told “Senate Republicans on Monday that they had additional flexibility to sell the firm now that regulators had declared its failure a threat to the financial system.”

The regulator held a failed auction on Sunday to find a new owner. The auction reportedly saw no bids from major U.S. banks. FDIC is now planning to give another go for the new owner in a second auction, according to the WSJ. However, a timetable has yet to be set for the second auction.

$SIVB. This is crazy. My understanding is that a lot of these assets have real value. https://t.co/6YgL8FyeoH

— David Adler (@DavidJAdler1991) March 13, 2023

Some reports suggest that JP Morgan, Apollo Management, and Morgan Stanley are among the potential suitors in talks about acquiring SVB Financial Group in a deal that would exclude the commercial bank currently under U.S. government control. HSBC has already announced that it is acquiring SVB’s UK unit. As of March 10, 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn.

HSBC Holdings plc announces that its UK ring-fenced subsidiary, HSBC UK Bank plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1. As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. https://t.co/hxVl09Z9n8

— Wu Blockchain (@WuBlockchain) March 13, 2023